If you follow me on the Twitter machine, you’d know I got long silver for a trade on Friday, June 28, around 11 a.m.
Now, I’ll admit I don’t use the Twitter much…
As a late-40s male, I don’t like the word “tweet.” And to say I am “tweeting,” well, it just feels silly. So I offset the silly factor by referring to Twitter as “the Twitter machine.”
I’ve also been known to say things like “query the Google” and “the Interwebnet” as well. My kids think I’m old-fashioned. They’re probably right.
Honestly, I don’t find much value on the Twitter. Most of the posts are simply marketing, attempts to get me to go to a particular website.
But there are exceptions…
Like on Monday, one of the best research firms out there, Bespoke Investments, offered up this chestnut:
The 1st trading day of July has been an up day for the market in 7 of last 8 years and 16 of last 20. Today would make it 8 of last 9.
I didn’t know that. But that insight could have made us all a little loot.
I had already decided to hold my Friday silver trade (and some Freeport-McMoRan (NYSE: FCX)) over the weekend. Fridays are usually weak. And after the Fed taper-rebound, a little red seemed healthy.
So, I’m still long silver. Freeport-McMoRan, too.
I’m not a gold bug, or a silver bug, if that’s the right term. I’m in it to make some loot.
And I’ve found that the easiest, most obvious trades are usually the most profitable.
The massive reversal for silver prices on Friday June 28 definitely counts as obvious.
This chart shows the last 10 days of the iShares Silver ETF (NYSE: SLV) in hourly increments. And yes, most of the action is ugly, as the SLV dropped from $21 to under $18 in a span of five days. Six months ago, silver was at $31.
Now, as I said earlier, I’m not a gold or silver bug; but I’ve been watching the two metals as they’ve fallen because, as you know, what goes up must come down — and vice versa.
I figured after a +50% drop from its highs, gold and silver would eventually bottom out and make a nice upside move.
The Buy Sign
I don’t guess when it comes to picking a bottom.
There are three things I like to see before I put my money at risk: re-test, volume, and a strong finish.
Let’s look at these in order.
Silver’s re-test actually took place over the course of three days. After SLV gapped down again to $18 on Wednesday, it consolidated there. This was a sign that the sellers may have been finished.
Of course, SLV had done this before, appearing to stabilize only to fall further.
That’s why it’s critical to have other signals to confirm that a reversal is at hand…
So when SLV blasted up through $18 on high volume around 10:30 on Friday morning, it gave the all-clear sign for at least an intra-day trade.
By the end of the day, after SLV posted its highest upside volume since May 20 and closed the recent downside gap by finishing the day at $18.96. That was enough to convince me to hold my silver position for a little while.
How long is a “little while?”
For trading purposes, SLV should stay above $18.79.
And in fact, the SLV is in the process of testing that level right now.
What the Manipulators Say
The problem with trading silver (and gold, for that matter) is that it’s a small market compared to the stock market or the bond market.
And that means big money can push the price around.
This is why I have no problem believing that JP Morgan (NYSE: JPM) is perpetually short silver.
So when JP Morgan gets bullish on commodities — including gold and silver, like they did just a couple days ago — it’s a good sign.
“It’s our first OW (overweight) call on commodities since September 2010…” a JP Morgan analyst said last week.
Rumor has it Goldman Sachs (NYSE: GS) has also closed its silver and gold shorts.
Oppenheimer is on board, too:
… at this time, we believe gold and gold miners represent good risk/reward. Indeed, the recent extreme weakness is judged to be the reciprocal or correlative of the extreme strength witnessed in the summer of 2011. The “despair” relating to gold now is as palpable as “euphoria” then.
Personally, I think you’re better off owning physical gold and/or silver rather than the miners.
That’s because the cost of production is so high. It costs around $1,200 an ounce to get gold out of the ground. And costs can run $18-$24 an ounce for silver.
At those prices, miners aren’t making much money. And the response will be to produce less — which will send prices higher.
Then there’s the fact that physical gold and silver are becoming harder to find.
My contacts from the collectible coin world tell me supply is tight.
So my bottom line is this: There could be a little more downside for silver; however, the odds favor a 15% to 20% move higher from current prices.
Until next time,
Until next time,
Briton Ryle
@BritonRyle on Twitter
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A 21-year veteran of the newsletter business, Briton Ryle is the editor of The Wealth Advisory income stock newsletter, with a focus on top-quality dividend growth stocks and REITs. Briton also manages the Real Income Trader advisory service, where his readers take regular cash payouts using a low-risk covered call option strategy. He is also the managing editor of the Wealth Daily e-letter. To learn more about Briton, click here.
